Highpower International, Inc. (Form: 10-Q, Received: 05/11/2018 12:06:32)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From To

COMMISSION FILE NO. 001-34098

HIGHPOWER INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

Delaware

20-4062622

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Building A1, 68 Xinxia Street, Pinghu, Longgang,

Shenzhen, Guangdong, 518111, People’s Republic of China

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(86) 755-89686238

(COMPANY’S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨ No x

The registrant had 15,559,658 shares of common stock, par value $0.0001 per share, outstanding as of May 11, 2018.

HIGHPOWER INTERNATIONAL, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED March 31, 2018

INDEX

				Page
Part I	Financial Information

	Item 1.	Consolidated Financial Statements

		(a)	Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017	1

		(b)	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	3

		(c)	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017(Unaudited)	4

		(d)	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22

	Item 4.	Controls and Procedures		22

Part II	Other Information

	Item 1.	Legal Proceedings		23

	Item 1A.	Risk Factors		23

	Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		23

	Item 3.	Default Upon Senior Securities		23

	Item 4.	Mine Safety Disclosures		23

	Item 5.	Other Information		24

	Item 6.	Exhibits		27

Signatures				28

Item 1. Consolidated Financial Statements

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

	March 31,		December 31,
	2018		2017
		*(Unaudited)*
		$		$
ASSETS
Current Assets:
Cash		18,859,355		14,502,171
Restricted cash		32,639,148		25,953,946
Accounts receivable, net		56,240,961		58,252,999
Amount due from a related party		921,862		1,165,838
Notes receivable		67,612		2,606,517
Advances to suppliers		6,511,584		6,050,531
Prepayments and other receivables		5,029,550		4,268,527
Foreign exchange derivatives		661,111		236,436
Inventories		55,347,466		42,946,644

Total Current Assets		176,278,649		155,983,609

Property, plant and equipment, net		48,189,218		46,520,776
Long-term prepayments		4,243,891		3,715,445
Land use rights, net		2,719,885		2,639,631
Other assets		746,938		748,431
Deferred tax assets, net		1,135,550		750,267
Long-term investments		11,209,442		9,906,379

TOTAL ASSETS		244,523,573		220,264,538

LIABILITIES AND EQUITY

LIABILITIES
Current Liabilities:
Accounts payable		61,149,301		60,368,012
Deferred government grant		799,040		309,638
Short-term loans		24,760,223		10,128,646
Non-financial institution borrowings		11,152,890		10,756,158
Notes payable		58,833,089		54,859,478
Amount due to a related party		780,702		-
Other payables and accrued liabilities		13,339,920		12,243,345
Income taxes payable		4,537,182		3,609,391

Total Current Liabilities		175,352,347		152,274,668

Income taxes payable, noncurrent		-		777,685

TOTAL LIABILITIES		175,352,347		153,052,353

COMMITMENTS AND CONTINGENCIES		-		-

See notes to condensed consolidated financial statements

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
EQUITY
Stockholders’ equity
Preferred stock
(Par value: $0.0001, Authorized: 10,000,000 shares, Issued and outstanding: none)		-		-
Common stock
(Par value: $0.0001, Authorized: 100,000,000 shares, 15,509,658 shares issued and outstanding at March 31, 2018 and at December 31, 2017, respectively)		1,551		1,551
Additional paid-in capital		12,951,177		12,709,756
Statutory and other reserves		6,549,815		6,549,815
Retained earnings		43,362,632		44,481,568
Accumulated other comprehensive income		6,306,051		3,469,495

TOTAL EQUITY		69,171,226		67,212,185

TOTAL LIABILITIES AND EQUITY		244,523,573		220,264,538

See notes to condensed consolidated financial statements

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Stated in US Dollars)

	Three months ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
	$			$
Net sales		49,783,453			41,866,848
Cost of sales		(42,217,126	)		(31,932,014	)
Gross profit		7,566,327			9,934,834

Research and development expenses		(2,561,837	)		(1,813,930	)
Selling and distribution expenses		(1,975,096	)		(1,638,313	)
General and administrative expenses		(4,114,810	)		(3,058,562	)
Foreign currency transaction loss		(1,014,693	)		(313,878	)
Total operating expenses		(9,666,436	)		(6,824,683	)

(Loss) income from operations		(2,100,109	)		3,110,151

Changes in fair value of warrant liability		-			(31,552	)
Changes in fair value of foreign exchange derivatives		703,715			-
Government grants		329,820			349,515
Other income		23,561			228,578
Equity in earnings of investee		156,250			146,932
Interest expenses		(241,852	)		(603,317	)
(Loss) income before taxes		(1,128,615	)		3,200,307

Income taxes benefit (expense)		9,679			(587,765	)
Net (loss) income		(1,118,936	)		2,612,542

Less: net income attributable to non-controlling interest		-			76,893
Net (loss) income attributable to the Company		(1,118,936	)		2,535,649

Comprehensive income
Net (loss) income		(1,118,936	)		2,612,542
Foreign currency translation gain (loss)		2,836,556			(24,001	)
Comprehensive income		1,717,620			2,588,541

Less: comprehensive income attributable to non-controlling interest		-			79,551
Comprehensive income attributable to the Company		1,717,620			2,508,990

(Loss) earnings per share of common stock attributable to the Company
- Basic		(0.07	)		0.17
- Diluted		(0.07	)		0.17

Weighted average number of common stock outstanding
- Basic		15,509,658			15,119,693
- Diluted		15,509,658			15,299,029

See notes to condensed consolidated financial statements

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

	Three Months Ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
	$			$
Cash flows from operating activities
Net (loss) income		(1,118,936	)		2,612,542
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,475,228			1,274,334
Allowance for doubtful accounts		18,524			5,015
Loss on disposal of property, plant and equipment		21,805			3,262
Deferred tax		(356,616	)		124,548
Changes in fair value of foreign exchange derivatives		(414,042	)		-
Equity in earnings of investee		(156,250	)		(146,932	)
Share based compensation		241,421			24,401
Changes in fair value of warrant liability		-			31,552
Changes in operating assets and liabilities:
Accounts receivable		3,713,692			7,314,824
Notes receivable		2,622,925			235,222
Advances to suppliers		(236,789	)		-
Prepayments and other receivables		(601,315	)		(485,520	)
Amount due from related parties		285,657			161,693
Amount due to a related party		-			193,240
Inventories		(10,779,233	)		(3,623,242	)
Accounts payable		(1,377,447	)		(5,111,874	)
Deferred income		475,783			116,359
Other payables and accrued liabilities		665,379			(1,977,117	)
Income taxes payable		19,371			330,735
Net cash flows (used in) provided by operating activities		(5,500,843	)		1,083,042

Cash flows from investing activities
Acquisitions of property, plant and equipment		(1,553,979	)		(2,873,489	)
Prepayment for long-term investment		(317,188	)		-
Net cash flows used in investing activities		(1,871,167	)		(2,873,489	)

Cash flows from financing activities
Proceeds from short-term loans		14,427,164			2,910,418
Repayments of short-term loans		-			(1,381,758	)
Proceeds from non-financial institution borrowings		-			8,726,892
Repayments of non-financial institution borrowings		-			(2,327,171	)
Proceeds from notes payable		28,429,600			20,467,907
Repayments of notes payable		(26,488,407	)		(13,081,781	)
Proceeds from exercise of employee options		-			68,519
Net cash flows provided by financing activities		16,368,357			15,383,026
Effect of foreign currency translation on cash and restricted cash		2,046,039			(72,952	)
Net increase in cash and restricted cash		11,042,386			13,519,627
Cash and restricted cash - beginning of period		40,456,117			20,538,033
Cash and restricted cash - end of period		51,498,503			34,057,660

Supplemental disclosures for cash flow information:
Cash paid for:
Income taxes		327,565			132,481
Interest expenses		114,588			583,720

See notes to condensed consolidated financial statements

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

The Company and basis of presentation

The consolidated financial statements include the financial statements of Highpower International, Inc. ("Highpower") and its 100%-owned subsidiary Hong Kong Highpower Technology Company Limited (“HKHTC”), HKHTC’s wholly-owned subsidiary Shenzhen Highpower Technology Company Limited (“SZ Highpower”), SZ Highpower’s wholly owned subsidiary Huizhou Highpower Technology Company Limited (“HZ HTC”) and SZ Highpower’s and HKHTC’s jointly owned subsidiaries, Springpower Technology (Shenzhen) Company Limited (“SZ Springpower”) and Icon Energy System Company Limited (“ICON”). Highpower and its direct and indirect wholly owned subsidiaries are collectively referred to as the "Company".

Basis of presentation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on April 4, 2018.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s consolidated financial position as of March 31, 2018, its consolidated results of operations for the three months ended March 31, 2018 and cash flows for the three months ended March 31, 2018, as applicable, have been made. Operating results for the three months period ended March 31, 2018 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2018 or any future periods.

Concentrations of credit risk

No customer accounted for 10% or more of total sales during the three months ended March 31, 2018 and 2017.

One supplier accounted for 21.2% and 10.5% of the total purchase amount during the three months ended March 31, 2018 and 2017, respectively.

No customer accounted for 10% or more of the accounts receivable as of March 31, 2018. One customer accounted for 10.1% of the accounts receivable as of December 31, 2017.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Summary of significant accounting policies

Long-term investment

For an investee over which the Company holds less than 20% voting interest and has no ability to exercise significant influence, the investments are accounted for under the cost method.

For an investee over which the Company has the ability to exercise significant influence, but does not have a controlling interest, the Company accounted for those using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than temporary. As of March 31, 2018 and December 31, 2017, management believes no impairment charge is necessary.

Foreign currency translation and transactions

Highpower’s functional currency is the United States dollar ("US$"). HKHTC's functional currency is the Hong Kong dollar ("HK$"). The functional currency of Highpower's other direct and indirect wholly and majority owned subsidiaries in the PRC is the Renminbi ("RMB").

Most of the Company’s oversea sales are priced and settled with US$. At the date a foreign currency transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction is denominated is recognized as foreign currency transaction gain or loss that is included in earnings for the period in which the exchange rate changes. At each balance sheet date, recorded balances that are denominated in a foreign currency are adjusted to reflect the current exchange rate.

The Company’s reporting currency is US$. Assets and liabilities of HKHTC and the PRC subsidiaries are translated at the current exchange rate at the balance sheet dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts are translated at historical rates. Translation adjustments are reported in accumulated other comprehensive income.

Fair value of financial instruments

The carrying values of the Company’s financial instruments, including cash, restricted cash, trade and other receivables, deposits, trade and other payables and bank borrowings, approximate their fair value due to the short-term maturity of such instruments.

ASC Topic 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC Topic 820 establishes a fair value hierarchy that requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company measures fair value using three levels of inputs that may be used to measure fair value:

-Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

-Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

-Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Summary of significant accounting policies (continued)

Recently issued accounting standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which was subsequently modified in August 2015 by ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. This guidance will be effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The core principle of ASU 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). In 2017, the FASB issued Accounting Standards Update (ASU) 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which was originally issued in ASU 2014-09. The amendments in this Update require that an entity to initially measure a retained non-controlling interest in a nonfinancial asset at fair value consistent with a how a retained non-controlling interest in a business is measured.

Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. It also impacts certain other areas, such as the accounting for costs to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

Management has adopted this standard effective January 1, 2018 using the modified-retrospective approach, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The adoption of ASC 606 did not have a material impact on the Company’s condensed consolidated balance sheet, statement of operations and statement of cash flows for the three months period ended March 31, 2018. See Note 3 for disclosures required by ASC 606 and the updated accounting policy for revenue recognition.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. Public business entities should apply the amendments in ASU 2018-02 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The Company is currently evaluating the impact of adopting ASU 2018-02 on its consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05, Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed into law. The Company is currently evaluating the impact of adopting ASU 2018-05 on its consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Revenue Recognition

The Company adopted ASC 606 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606.

Revenue is recognized when (or as) the Company satisfies performance obligations by transferring a promised goods to a customer. Revenue is measured at the transaction price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods to the customer. Contracts with customers are comprised of customer purchase orders, invoices and written contracts. Given the nature of our business, customer product orders are fulfilled at a point in time and not over a period of time.

The majority of domestic sales contracts transfer control to customers upon receipt of product by customers. The majority of oversea sales contracts transfer control to customers when goods were delivered to the carriers. In most jurisdictions where the Company operates, sales are subject to Value Added Tax (“VAT”). Revenue is presented net of VAT.

The Company does not have arrangements for returns from customers and does not have any future obligations directly or indirectly related to product resale by customers. The Company has no sales incentive programs.

The following table disaggregates product sales by business segment by geography which provides information as to the major source of revenue. See Note 15 for additional description of our reportable business segments and the products being sold in each segment.

	Three months ended March 31, 2018
	Lithium Business		Ni-MH Batteries and Accessories		Consolidated
Primary Geographic Markets	(Unaudited)		(Unaudited)		(Unaudited)
	$		$		$
China Mainland		22,590,952		5,714,811		28,305,763
Asia, others		12,770,712		2,983,684		15,754,396
Europe		905,169		3,632,734		4,537,903
North America		329,822		835,009		1,164,831
Others		-		20,560		20,560
Total sales		36,596,655		13,186,798		49,783,453

The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

We do not have amounts of contract assets since revenue is recognized as control of goods are transferred. Our contract liabilities consist of advance payments from customers. Our contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are expected to be recognized as revenue within one year and are included in Other payables and accrued liabilities in our Condensed Consolidated Balance Sheet.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Accounts receivable, net

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Accounts receivable		59,443,695		61,431,785
Less: allowance for doubtful accounts		3,202,734		3,178,786
		56,240,961		58,252,999

Inventories

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Raw materials		31,539,229		21,428,315
Work in progress		10,503,750		6,931,486
Finished goods		12,960,846		14,284,563
Packing materials		30,817		36,797
Consumables		312,824		265,483
		55,347,466		42,946,644

Property, plant and equipment, net

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Cost
Construction in progress		1,624,402		1,330,643
Furniture, fixtures and office equipment		6,326,512		5,794,983
Leasehold improvement		7,404,622		7,080,409
Machinery and equipment		34,968,872		33,176,416
Motor vehicles		1,651,532		1,498,605
Buildings		20,913,122		20,169,197
		72,889,062		69,050,253
Less: accumulated depreciation		24,699,844		22,529,477
		48,189,218		46,520,776

The Company recorded depreciation expenses of $1,445,700 and $1,240,126 for the three months ended March 31, 2018 and 2017, respectively.

During the three months ended March 31, 2018, the Company deducted deferred income related to government grants of $nil on the carrying amount of property, plant and equipment. During the year ended December 31, 2017, the Company deducted deferred income related to government grants of $263,948 in calculating the carrying amount of property, plant and equipment.

The buildings comprising the Huizhou facilities were pledged as collateral for bank loans. The net carrying amounts of the buildings were $9,502,186 and $9,224,694 as of March 31, 2018 and December 31, 2017, respectively.

The building located in Shenzhen, Guangdong was pledged as collateral for bank loans. The net carrying amount of the buildings was $405,105 and $396,843 as of March 31, 2018 and December 31, 2017, respectively.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Long-term investment

	March 31, 2018					December 31, 2017
	(Unaudited)		Interest%					Interest%
	$					$
Equity method investment
-Ganzhou Highpower Technology Company Limited (“GZ Highpower”) (1)		8,558,347		31.294	%		8,102,520		31.294	%
-Shenzhen V-power Innovative Technology Co., Ltd (“V-power”) (2)		780,702		49.000	%		-		N/A
Cost method investment
-Huizhou Yipeng Energy Technology Co Ltd. (“Yipeng”) (3)		1,870,393		4.654	%		1,803,859		4.654	%
		11,209,442					9,906,379

(1) Investment in GZ Highpower

On December 21, 2017, after the completion of the capital increase to GZ Highpower by other shareholders, the Company lost the controlling power over GZ Highpower and deconsolidated GZ Highpower. Thereafter, the investment was recorded under the equity method.

The equity in earnings of investee was $156,250 for the three months ended March 31, 2018.

(2) Investment in V-power

On February 28, 2018, the Company signed an investment agreement (the “Agreement”) with a related company and a group of individuals (the “Founder Team”) with an aggregate amount of RMB4.9 million (approximately $0.8 million) for 49% of the equity interest of V-power, which was recorded under the equity method. Pursuant to the terms of the Agreement, the Company shall complete the capital injection to V-power no later than December 31, 2018. In addition, the Company agrees to transfer the 15% of original equity interest of V-power to the Founder Team as compensation under voluntary assignment as any of the following requirements met: 1. annual sales revenue higher or equal to RMB30 million before the first capital increase of V-power; 2. valuation of V-power higher or equal to RMB30 million before equity issuance. As of March 31, 2018, no capital injection was made by the Company, and the unpaid amount was recorded as amount due to a related party (See Note 16).

Since V-power did not commence any operation, there was no profit or loss for the three months ended March 31, 2018.

(3) Investment in Yipeng

In 2017, after the completion of the capital injection to Yipeng and the equity transfer payment received by the Company from the other shareholder, the Company’s equity ownership in Yipeng decreased from 35.4% to 4.654%, and the Company lost the ability to exercises significant influence over Yipeng, discontinued the use of equity mehod and applied the cost methed in accounting.

The equity in earnings of investee was $146,932 for the three months ended March 31, 2017.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Taxation

Highpower and its direct and indirect wholly owned subsidiaries file tax returns separately.

1) VAT

Pursuant to the Provisional Regulation of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to a portion of or all the refund of VAT that it has already paid or incurred. The Company’s PRC subsidiaries are subject to VAT at 17% of their revenues.

2) Income tax

United States

Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax.

On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

As of March 31, 2018, the Company has not completed its accounting for certain tax effects of enactment of the Tax Act; however, the Company has made reasonable estimates of the effects on our existing deferred tax balances and the one-time transition tax. The Company expects to finalize these provisional estimates before the end of 2018 after completing our reviews and analysis, including reviews and analysis of any interpretations issued during this re-measurement period.

The one-time transition tax is based on the total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred U.S. income taxes. The Company expects to make adjustments to this provisional estimate based on additional clarifying and interpretative technical guidance to be issued related to the calculation of the one-time transition tax.

The Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Taxed Income (GILTI) earned by foreign subsidiaries. The Company has not determined its accounting policy with respect to GILTI and has therefore included the 2018 estimate of current year GILTI as a period cost and included as part of the estimated annual effective tax rate. The 2018 estimated annual effective tax rate also includes the 2018 impact of all other U.S. tax reform provisions that were effective on January 1, 2018.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Taxation (continued)

Hong Kong

HKHTC, which was incorporated in Hong Kong, is subject to a corporate income tax rate of 16.5%.

PRC

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income.

In China, the companies granted with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2018 and 2017.

The components of the provision for income taxes (benefit) expense are:

	Three months ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
	$			$
Current		346,937			463,217
Deferred		(356,616	)		124,548
Total income taxes (benefit) expense		(9,679	)		587,765

The reconciliation of income taxes expenses computed at the PRC statutory tax rate to income tax (benefit) expense is as follows:

	Three months ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
	$			$
(Loss) income before tax		(1,128,615	)		3,200,307

Provision for income taxes at PRC statutory income tax rate (25%)		(282,154	)		800,077
Impact of different tax rates in other jurisdictions		58,660			3,255
Effect of PRC preferential tax rate		6,453			(391,843	)
Other non-deductible expenses		16,576			16,547
Change in valuation allowance of deferred tax assets		190,786			159,729
Effective enterprise income tax		(9,679	)		587,765

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

Taxation (continued)

3) Deferred tax assets, net

Deferred tax assets and deferred tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of temporary difference.

	March 31,			December 31,
	2018			2017
	(Unaudited)
	$			$
Tax loss carry-forward		1,425,204			991,766
Allowance for doubtful receivables		142,521			136,562
Impairment for inventory		269,234			222,289
Difference for sales cut-off		20,576			17,322
Deferred government grant		119,858			46,446
Property, plant and equipment subsidized by government grant		276,510			269,344
Impairment for property, plant and equipment		60,370			58,304
Total gross deferred tax assets		2,314,273			1,742,033
Valuation allowance		(1,178,723	)		(991,766	)
Total net deferred tax assets		1,135,550			750,267

As of March 31, 2018, the Company had net operating loss carry-forwards in Hong Kong of $6,404,130 and the United States of $581,148 without expiration and in the PRC of $1,643,213, which will expire in 2022.

The Company has deferred tax assets which consisted of tax loss carry-forwards and other items that can be carried forward to offset future taxable income. Management determined it is more likely than not that part of the deferred tax assets could not be utilized, so a valuation allowance was provided for as of March 31, 2018 and December 31, 2017. The net valuation allowance increased by approximately $0.2 million and $0.2 million during the three months ended March 31, 2018 and 2017, respectively.

Notes payable

Notes payable presented to certain suppliers as a payment against the outstanding trade payables.

Notes payable are mainly bank acceptance bills which are non-interest bearing and generally mature within six months. The outstanding bank acceptance bills are secured by restricted cash deposited in banks. Outstanding bank acceptance bills were $58,833,089 and $54,859,478 as of March 31, 2018 and December 31, 2017, respectively.

10.

Short-term loans

As of March 31, 2018 and December 31, 2017, short-term loans consisted of bank borrowings for working capital and capital expenditure purposes and were secured by personal guarantees executed by certain directors of the Company, time deposits with a carrying amount of $5,941,350 and $3,982,226, land use right with a carrying amount of $2,719,885 and $2,639,631, and buildings with a carrying amount of $9,907,291 and $9,621,537, respectively.

The loans were primarily obtained from two banks with interest rates ranging from 5.00% to 6.09% per annum and 5.000% to 5.8725% per annum as of March 31, 2018 and December 31, 2017, respectively. The interest expenses were $111,713 and $259,837 for the three months ended March 31, 2018 and 2017, respectively.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

11.

Non-financial institution borrowings

As of March 31, 2018, the Company obtained borrowings from a third party non-financial institution in an amount of $1,593,270 and an individual in an amount of $9,559,620, which were used for working capital and capital expenditure purposes. The interest rates for the borrowings were 5.655% and 5.66% per annum, respectively. The borrowings are personally guaranteed by the Company's Chief Executive Officer, Mr. Dang Yu Pan. The borrowing from the individual, which expired on January 10, 2018 was extended for an additional year.

The interest expense of the above borrowings was $162,303 and $143,518 for the three months ended March 31, 2018 and 2017, respectively.

12.

Lines of credit

The Company entered into various credit contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. As of March 31, 2018, the total and unused lines of credit were $85.1 million and $14.6 million with maturity dates from April 2018 to July 2019. As of December 31, 2017, the total and unused lines of credit were $79.8 million and $31.3 million with maturity dates from March 2018 to July 2019.

These lines of credit were guaranteed by the Company’s Chief Executive Officer, Mr. Dang Yu Pan or Mr. Dang Yu Pan and his wife.

13.

Earnings per share

The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2018 and 2017.

	Three months ended March 31,
	2018			2017
	(Unaudited)			(Unaudited)
	$			$
Numerator:
Net (loss) income attributable to the Company		(1,118,936	)		2,535,649

Denominator:
Weighted-average shares outstanding
- Basic		15,509,658			15,119,693
- Dilutive effects of equity incentive awards		-			179,336
- Diluted		15,509,658			15,299,029

Net (loss) income per share:
- Basic		(0.07	)		0.17
- Diluted		(0.07	)		0.17

Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Potential dilutive securities are excluded from the calculation of diluted EPS in loss periods as their effect would be anti-dilutive.

Due to the loss for for three months ended March 31, 2018, 955,542 and 200,000 options and warrants were excluded in the computation of diluted earnings per share, because the effect would be anti-dilutive. For the three months ended March 31, 2017, 145,000 and 540,001 options and warrants were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the shares of common stock.

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

14.

Defined contribution plan

Full-time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits (“the Benefits”) are provided to employees. Chinese labor regulations require that the PRC operating subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries. Except for contributions made related to the Benefits, the Company has no legal obligation.

The total contributions made, which were expensed as incurred, were $653,957 and $504,520 for the three months ended March 31, 2018 and 2017, respectively.

15.

Segment information

The reportable segments are components of the Company that offer different products and are separately managed, with separate financial information available that is separately evaluated regularly by the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, in determining the performance of the business. The Company categorizes its business into three reportable segments, namely (i) Lithium Business; (ii) Ni-MH Batteries and Accessories; and (iii) New Materials.

The CODM evaluates performance based on each reporting segment’s net sales, cost of sales, gross profit and total assets. Net sales, cost of sales, gross profit and total assets by segments is set out as follows:

	Three months ended March 31,
	2018		2017
	(Unaudited)		(Unaudited)
	$		$
Net sales
Lithium Business		36,596,655		27,490,494
Ni-MH Batteries and Accessories		13,186,798		12,527,313
New Materials		-		1,849,041
Total		49,783,453		41,866,848

Cost of Sales
Lithium Business		30,791,339		21,639,869
Ni-MH Batteries and Accessories		11,425,787		9,188,390
New Materials		-		1,103,755
Total		42,217,126		31,932,014


Gross Profit
Lithium Business		5,805,316		5,850,625
Ni-MH Batteries and Accessories		1,761,011		3,338,923
New Materials		-		745,286
Total		7,566,327		9,934,834

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Total Assets
Lithium Business		191,951,616		171,881,450
Ni-MH Batteries and Accessories		52,571,957		48,383,088
Total		244,523,573		220,264,538

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

15.

Segment information (continued)

All long-lived assets of the Company are located in the PRC. Geographic information about the sales and accounts receivable based on the locations of the Company’s customers is set out as follows:

	Three months ended March 31,
	2018		2017
	(Unaudited)		(Unaudited)
	$		$
Net sales
China Mainland		28,305,763		22,161,592
Asia, others		15,754,396		13,695,558
Europe		4,537,903		4,852,730
North America		1,164,831		1,058,132
South America		-		61,737
Others		20,560		37,099
		49,783,453		41,866,848

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Accounts receivable
China Mainland		40,629,764		37,636,478
Asia, others		11,819,346		15,294,527
Europe		3,299,588		5,189,859
North America		472,145		94,585
South America		-		12,816
Others		20,118		24,734
		56,240,961		58,252,999

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

16.

Related party balance and transaction

Related party balance

	March 31,		December 31,
	2018		2017
	(Unaudited)
	$		$
Accounts receivable		921,432		632,704
Other receivable		430		533,134
Amount due from a related party- GZ Highpower		921,862		1,165,838

Other payable-investment (1)		780,702		-
Amount due to a related party- V-power		780,702		-

(1) The Company signed an investment agreement with an aggregate amount of RMB4.9 million (approximately $0.8 million) in investing for 49% of the equity interest of V-power which was set up on March 1, 2018 (See Note 7).

Related party transaction

	Three months ended March 31,
	2018		2017
	(Unaudited)		(Unaudited)
	$		$
Income:
Sales		225,787		624,323
-GZ Highpower		225,787		-
-Yipeng		-		624,323
Rental income- Yipeng		-		11,299

Expenses:
Equipment rental fee- Yipeng		-		162,302

Repayment:
Other receivable- GZ Highpower		550,256		-

17.

Subsequent event

The Company has evaluated subsequent events through the issuance of the unaudited condensed consolidated financial statements and no subsequent event is identified that would have required adjustment or disclosure in the consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes that are included in this Quarterly Report and the audited consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with SEC on April 4, 2018 (the “Annual Report”).

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

Net sales increased by $7.9 million, or 18.9%, during the first quarter of 2018 compared to the same quarter in 2017. Excluding GZ Highpower, net sales increased 24.1% to $49.8 million from $40.1 million. The main driver was our lithium business, including high end consumer products, industrial applications and increased demand for artificial intelligence products .

Lithium business net sales increased by $9.1 million, or 33.1%, during the first quarter of 2018 compared to the same quarter in 2017.

Ni-MH batteries and accessories net sales increased by $0.7 million, or 5.3%, during the first quarter of 2018 compared to the same quarter in 2017, which was in line with the whole industry trend.

Gross profit during the first quarter of 2018 was $7.6 million, or 15.2% of net sales, compared to $9.9 million, or 23.7% of net sales, for the comparable period in 2017. This decrease was mainly due to high raw material prices.

For 2018, we will continue to drive business growth. As raw material prices may be still at a high level, we will strive to balance our selling price and customer expectation carefully. At same time, we will seek to continuously improve our labor efficiency and improve material usage for better gross margin.

Investment in V-power

On February 28, 2018, the Company signed an investment agreement (the “Agreement”) with an aggregate amount of RMB4.9 million (approximately $0.8 million) for 49% of the equity interest of V-power. Pursuant to the terms of the Agreement, the Company shall complete the capital injection to V-power no later than December 31, 2018. V-power now focus on the development of electronic vehicle battery management systems (“EV BMS”) , in the future V-power will gradually extend the business to design and produce EV power modules, energy storage systems (“ESS”) and related products.

Critical Accounting Policies

See note 2 to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies.

Results of Operations

The following table sets forth the unaudited consolidated statements of operations of the Company for the three months ended March 31, 2018 and 2017, both in US$ and as a percentage of net sales.

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Amounts)	*Three months ended March 31,*
	*2018*					*2017*					*Increased (decreased)* %
	*(Unaudited)*					*(Unaudited)*
Net Sales		49,783		100.0	%		41,867		100.0	%		18.9	%
Cost of Sales		(42,217	)	(84.8	%)		(31,932	)	(76.3	%)		32.2	%
Gross profit		7,566		15.2	%		9,935		23.7	%		(23.8	%)

Research and development expenses		(2,562	)	(5.1	%)		(1,814	)	(4.3	%)		41.2	%
Selling and distribution expenses		(1,975	)	(4.0	%)		(1,638	)	(3.9	%)		20.6	%
General and administrative expenses		(4,115	)	(8.3	%)		(3,059	)	(7.3	%)		34.5	%
Foreign currency transaction loss		(1,015	)	(2.0	%)		(314	)	(0.8	%)		223.3	%
(Loss) income from operations		(2,101	)	(4.2	%)		3,110		7.4	%		(167.5	%)

Changes in fair value of warrant liability		-		0.0	%		(32	)	(0.1	%)		(100.0	%)
Changes in fair value of foreign currency derivatives		704		1.4	%		-		0.0	%		NA
Government grants		330		0.7	%		350		0.8	%		(5.6	%)
Other income		24		0.0	%		228		0.5	%		(89.7	%)
Equity in earnings of investee		156		0.3	%		147		0.4	%		6.3	%
Interest expenses		(242	)	(0.5	%)		(603	)	(1.5	%)		(59.9	%)
(Loss) income before taxes		(1,129	)	(2.3	%)		3,200		7.6	%		(135.3	%)

Income taxes benefit (expense)		10		0.0	%		(587	)	(1.4	%)		(101.6	%)
Net (loss) income		(1,119	)	(2.2	%)		2,613		6.2	%		(142.8	%)

Less: net income attributable to non-controlling interest		-		0.0	%		77		0.2	%		(100.0	%)
Net (loss) income attributable to the Company		(1,119	)	(2.2	%)		2,536		6.1	%		(144.1	%)

Diluted (loss) earnings per common stock attributable to the Company		(0.07	)				0.17

Net sales

Net sales for the three months ended March 31, 2018 were $49.8 million compared to $41.9 million for the comparable period in 2017, an increase of $7.9 million, or 18.9%. The increase was driven by our lithium business, which was partially offset by Ni-MH batteries and the impact of deconsolidation of GZ Highpower. Lithium business net sales increased by $9.1 million, or 33.1%, during the three months ended March 31, 2018, compared to the comparable period in 2017, which was due to the increase in the number of lithium batteries units sold. Ni-MH batteries and accessories net sales increased by $0.7 million, or 5.3%, during the three months ended March 31, 2018, compared to the comparable period in 2017, which was in line with the whole industry trend.

Gross profit

Gross profit for the three months ended March 31, 2018 was $7.6 million, or 15.2% of net sales, compared to $9.9 million, or 23.7% of net sales, for the comparable period in 2017. This decrease was mainly due to high raw material prices.

Research and development expenses

Research and development expenses were $2.6 million, or 5.1% of net sales, for the three months ended March 31, 2018, compared to $1.8 million, or 4.3% of net sales, for the comparable period in 2017. The Company will continue to invest on R&D activities in the future.

Selling and distribution expenses

Selling and distribution expenses were $2.0 million, or 4.0% of net sales, for the three months ended March 31, 2018, compared to $1.6 million, or 3.9% of net sales, for the comparable period in 2017. The percent of net sales remained stable.

General and administrative expenses

General and administrative expenses were $4.1 million, or 8.3% of net sales, for the three months ended March 31, 2018, compared to $3.1 million, or 7.3% of net sales, for the comparable period in 2017. The increase was mainly due to the increase of the provision for the incentive plan.

Foreign currency transaction loss

We experienced a loss of $1.0 million and $0.3 million for the three months ended March 31, 2018 and 2017, respectively, on the exchange rate difference between the US$ and the RMB.

The loss in exchange rate difference was due to the influence of the RMB relative to the US$ over the respective periods. We used the foreign currency derivative contracts to reduce the impact from the fluctuation on exchange rates.

Changes in fair value in foreign currency derivatives

We experienced a gain on derivative instruments of $0.7 million for the three months ended March 31, 2018.

Government grants

Government grants was $0.3 million for the three months ended March 31, 2018, compared to $0.4 million for the comparable period in 2017.

Other income

Other income was $23,561 for the three months ended March 31, 2018, compared to $0.2 million for the comparable period in 2017.

Equity in earnings of investee

Equity in earnings of an equity method investee from GZ Highpower was $0.2 million for the three months ended March 31, 2018, compared to $0.1 million from Yipeng for the comparable period in 2017.

Interest expenses

Interest expense was $0.2 million for the three months ended March 31, 2018, compared to interest expens of $0.6 million for the comparable period in 2017.

Income taxes benefit (expenses)

Income tax benefit was $9,679 for the three months ended March 31, 2018. We recorded provision for income tax expense of $0.6 million for the comparable period in 2017.

Net (loss) income

Net loss attributable to the Company for the three months ended March 31, 2018 was $1.1 million. Net income attributable to the Company (excluding net gain attributable to non-controlling interest) of $2.5 million for the comparable period in 2017, a decrease of $3.6 million, or 144.1%.

Reconciliation of Net Income to EBITDA

A table reconciling earnings before interest, income tax, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, to the appropriate GAAP measure is included with the Company's financial information below. EBITDA was derived by taking earnings before interest expense (net), taxes, depreciation and amortization. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The Company believes this non-GAAP measure is useful to investors as it provides a basis for evaluating the Company's operating results in the ordinary course of its operations. This non-GAAP measure is not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with, and not in lieu of, the corresponding GAAP measures.

	*Three months ended* *March 31,*
	2018			2017
	(Unaudited)			(Unaudited)
		$			$
Net (loss) income attributable to the Company		(1,118,936	)		2,535,649

Interest expense		241,852			603,317
Income taxes (benefit) expenses		(9,679	)		587,765
Depreciation and amortization		1,475,228			1,274,334

EBITDA		588,465			5,001,065

Key financial items excluding GZ Highpower

The Company deconsolidated GZ Highpower on December 21, 2017. Considered that the Company no longer presentes GZ Highpower’s and operations and comprehensive incomes upon deconsolidation, the table below shows the comparative figures of key financial items excluding the effect of GZ Highpower:

	Three months ended March, 31
	2018			2017
	(unaudited)			(unaudited)
	$			$
Sales:
Lithium Business		36,596,655			27,490,494
Ni-MH Batteries and Accessories		13,186,798			12,527,313
Sales to GZ Highpower		-			92,030
Net sales (excluding GZ Highpwer)		49,783,453			40,109,837
Gross profit (excluding GZ Highpwer)		7,566,327			9,327,039
Gross profit margin (excluding GZ Highpwer)		15.2	%		23.3	%

Net (loss) income:
Net (loss) income		(1,118,936	)		2,612,542
Less: Net income of GZ Highpower		-			256,308
Net (loss) income (excluding GZ Highpwer)		(1,118,936	)		2,356,234

Liquidity and Capital Resources

We had cash of approximately $18.9 million as of March 31, 2018, compared to $14.5 million as of December 31, 2017.

To provide liquidity and flexibility in funding our operations, we borrow funds under bank facilities and other external sources of financing. As of March 31, 2018, we had lines of credit with eight financial institutions aggregating $85.1 million. The maturities of these facilities vary from April 2018 to July 2019. The facilities are subject to regular review and approval. Certain of these bank facilities are guaranteed by our Chief Executive Officer, Mr. Dang Yu Pan, pledged by land use right and buildings, and contain customary affirmative and negative covenants for secured credit facilities of this type. Interest rates are generally based on the banks’ reference lending rates. No significant commitment fees are required to be paid for the bank facilities. As of March 31, 2018, we had utilized approximately $70.5 million under such general credit facilities and had available unused credit facilities of $14.6 million.

Net cash used in operating activities was approximately $5.5 million for the three months ended March 31, 2018, compared to net cash provided by operating activities of $1.1 million for the comparable period in 2017. The net cash increase of $6.6 million used in operating activities is primarily due to an increase of $7.2 million in cash outflow from inventories and an increase of $2.6 million in cash inflow from other payables and accrued liabilities.

Net cash used in investing activities was $1.9 million for the three months ended March 31, 2018, compared to net cash used in investing activities of $2.9 million for the comparable period in 2017. The net cash decrease of $1.0 million used in investing activities is primarily due to an decrease of $1.3 million in cash outflow from acquisition of property, plant and equipment.

Net cash provided by financing activities was $16.4 million for the three months ended March 31, 2018, compared to $15.4 million for the comparable period in 2017. The net increase of $1.0 million in net cash provided by financing activities was primarily attributable to an increase of $13.4 million in cash outflow from repayment of notes payable and an increase of $11.5 million in cash inflow from proceeds from short-term bank loans.

Our inventory turnover was 3.4 times and 5.3 times for the three months ended March 31, 2018 and 2017, respectively. The average days outstanding of our accounts receivable was 103 days at March 31, 2018, compared to 77 days at December 31, 2017. The lower inventory turnover was mainly due to the our reserve on main raw material because of the high raw material price.

We believe that available cash and unused credit facilities should enable the Company to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued.

Recent Accounting Standards

Please refer to Note 2 (Recently issued accounting standards).

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Disclosure controls and procedures are controls and other procedures that are designed and adopted by management to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that all necessary information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting

There were no significant changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2018, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

On January 19, 2018, the Company and FirsTrust engaged in a court-sponsored mediation and on April 6, 2018, they entered into a Settlement and Mutual Release Agreement pursuant to which they provided mutual releases, agreed to dismiss the actions and Highpower agreed to pay to FirsTrust $450,000. The settlement amount is being paid in two installments. The first installment of $212,500 was paid in the form of 50,000 shares of common stock that were issued on April 9, 2018 and the second installment of $237,500 will be paid on July 19, 2018 in cash or shares of common stock, at the Company’s discretion. The number of shares to be issued for the second installment, if applicable, will be based on the closing price of the common stock listed on Nasdaq on July 16, 2018.

Item 1A. Risk Factors

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the SEC on April 4, 2018 and all of the information contained in our public filings before deciding whether to purchase our common stock. Other than as set forth below, there have been no material revisions to the “Risk Factors” as set forth in our Annual Report on Form 10-K.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3. Default Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

Working capital loan contract between SZ Highpower and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Sub-branch

Working capital loan contract between SZ Springpower and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Sub-branch

On March 19, 2018, SZ Highpower entered into a working capital loan contract with Industrial and Commercial Bank of China Ltd., Shenzhen Henggang Sub-branch providing for an aggregate loan of RMB10,000,000 ($1,593,270) to be used as current funds for production and operations. SZ Highpower must withdraw the facility before June 15, 2018, after which time the bank may cancel all or part of the facility. The term of the loan is 12 months from the first withdrawal date. The interest rate is 5.633%, which equals to the one year benchmarked by interbank rates, float 31%.The loan is guaranteed by HK HTC, SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,593,270 as of March 31, 2018.

On January 23, 2018, SZ Springpower entered into a working capital loan contract with Industrial and Commercial Bank of China Ltd., Shenzhen Henggang Sub-branch providing for an aggregate loan of RMB10,000,000 ($1,593,270) to be used as current funds for production and operations. SZ Springpower must withdraw the facility before January 11, 2019, after which time the bank may cancel all or part of the facility. The term of the loan is 12 months from the first withdrawal date. The interest rate is 5.22%, which equals to the one year benchmarked by interbank rates, plus 0.92%.The loan is guaranteed by HK HTC, HZ HTC, and our Chief Executive Officer, Dang Yu Pan. The Company’s building in Shenzhen also serves as collateral for the loan. The balance of loan was $1,593,270 as of March 31, 2018.

The following constitute events of default under the loan contracts: the borrower failure to repay principal, interest, and other payables in accordance with the provisions specified in this contract; or failure to fulfill any other obligations in this contract, or contrary to the statements, guarantee and commitments in this contract; the guarantees in this contract have adversely changed to the Lender’s loan, and the borrower is not available to provide other guarantees approved by the lender failure to pay off any other debts due by the borrower, or failure to fulfill or breach other obligations in this contract, or likely to affect the performance of the obligations in this contract; the financial performance of the profitability, debt payment ability, operating capacity and cash flow of the Borrower exceed the agreed standards, or deterioration has been or may affect the obligations in this contract; the borrower’s ownership structure, operation, external investment has changed adversely, which have affected or may affect the fulfillment of the obligations in this contract; the borrower involves or may involve significant economic disputes, litigation, arbitration, or asset seizure, detention or enforcement, or judicial or administrative authorities for investigation or take disciplinary measures in accordance with the laws, or illegal with relevant state regulations or policies in accordance with the laws, or exposure by media, which have affected or may affect the fulfillment of the obligations in this contract; the borrower’s principal individual investors, key management officer’s change, disappearances or restriction of personal liberty, likely to affect the performance of the obligations in this contract; using false contracts with related parties, using no actual transaction to extract the lender’s funds or credit, or evasion of lender’s loan right through related party transactions; having been or may be out of business, dissolution, liquidation, business reorganizations, business license has been revoked or bankruptcy; breaches food safety, production safety, environmental protection and other environmental and social risk management related laws and regulations, regulatory requirements or industry standards, resulting in accidents, major environmental and social risk events, likely to affect the performance of the obligations in this contract; in this contract, the borrower's credit rating, level of profitability, asset-liability ratio, net cash flow of operating and other indicators do not meet the credit conditions of the lender; or without the lender’s written contract, pledges guarantee or provides assurance guarantees to other party, likely to affect the performance of the obligations in this contract; other adverse situations may affect in the realization of loan right in this contract.

Upon the occurrence of an event of default, the bank may: request the borrower rectify the event of default within a specified time period; cancel or terminate the borrower’s the unused portion of the credit line and other financing arrangements in whole or in part; declare all amounts outstanding under the contract immediately due and payable; require the borrower to compensate the bank for losses it incurs as a result of the event of default; or other measures permitted under applicable law or other necessary measures.

Working Capital Loan Contract between SZ Highpower and Bank of China, Buji Sub-branch

Working Capital loan contract between SZ Springpower and Bank of China, Buji Sub-branch

On January 24, 2018, SZ Highpower entered into a working capital loan contract with Bank of China, Buji Sub-branch providing for an aggregate loan of RMB10,000,000 ($1,593,270) to be used by SZ Highpower to purchase raw materials. The term of the loan is 11 months from the first withdrawal date. SZ Highpower must withdraw the facility in 30 days from February 1, 2018, after which time the bank may cancel all or part of the facility. The interest rate will equal the one year benchmarked by interbank rates, plus 1.79%. The loan is guaranteed by SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The Company’s real estate properties and land use rights in Huizhou also serve as collateral for the loan. The balance of loan was $1,593,270 as of March 31, 2018.

On March 15, 2018, SZ Highpower entered into a working capital loan contract with Bank of China, Buji Sub-branch providing for an aggregate loan of RMB30,000,000 ($4,779,810) to be used by SZ Highpower to purchase raw materials. The term of the loan is 296 days from the first withdrawal date. SZ Highpower must withdraw the facility in 30 days from March 20, 2018, after which time the bank may cancel all or part of the facility. The interest rate will equal the one year benchmarked by interbank rates, plus 1.79%. The loan is guaranteed by SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The Company’s real estate properties and land use rights in Huizhou also serve as collateral for the loan. The balance of loan was $4,779,810 as of March 31, 2018.

On March 7, 2018, SZ Springpower entered into a working capital loan contract with Bank of China, Buji Sub-branch providing for an aggregate loan of RMB20,000,000 ($3,186,540) to be used by SZ Springpower to purchase raw materials. The term of the loan is 10 months from the first withdrawal date. SZ Highpower must withdraw the facility in 30 days from March 8, 2018, after which time the bank may cancel all or part of the facility. The interest rate will equal the one year benchmarked by interbank rates, plus 1.79%. The loan is guaranteed by SZ Highpower, HZ HTC and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $3,186,540 as of March 31, 2018.

The following constitute events of default under the loan contracts: failure to comply with repayment obligations under the agreement or any affiliated credit lines contract; failure to use borrowed funds according to the specified purposes; any statement made by the borrower in the agreement is untrue or in violation of any commitments in the loan agreement or affiliated loan contracts; failure to provide an additional guarantor as required by the loan agreement; significant business difficulties or risks, deteriorated financial losses or losses of assets, or other financial crisis; breach of covenants in other credit agreements with the bank or affiliated institutions of the bank; any guarantor breaches a contract or defaults under any agreement with the bank or affiliated institutions of the bank; termination of its business or engagement due to any wind-up, cancellation or bankruptcy issues; involvement or potential involvement in significant economic disputes, litigation, arbitration or assets seizure or confiscation, or its involvement in other judicial proceedings or administrative punishment proceedings that have affected or may affect its capacity to perform its obligations under the affiliated specific credit line contract; an abnormal change in any major individual investor or key management member of the borrower or such a person or entity’s becoming subject to investigation or restriction by the judiciary, which have or may affect the borrower’s performance of obligation under affiliated specific credit line contract; Bank of China’s discovery of any situation that may affect the financial position or performance capacities of the borrower or a guarantor after the bank’s annual review of the borrower’s financial position and performance; failure to provide the relevant documentation acceptable to Bank of China about the inflows and outflows of large-sum and abnormal capital in capital recovery account; or being in violation of other rights and obligations under the affiliated specific credit line contract.

Upon the occurrence of an event of default, the bank may: request the borrower or any guarantor to rectify the event of default within a specified time period; reduce, temporarily suspend or permanently terminate the borrower’s credit limit in whole or in part; temporarily suspend or permanently terminate in part or in whole the borrower’s application for specific credit line under the agreement; announce the immediate expiration of all the credit lines granted under the affiliated specific credit line contract as well as other contracts; terminate or release the contract, terminate or release in part or in whole any of the affiliated specific credit line contract as well as the other contracts executed between the borrower and the bank; require compensation from the borrower on the losses thereafter caused; hold the borrower’s deposit account at the bank in custody for repayment of amounts due under the contract; exercise the real rights for security; request repayment from a guarantor; or take any other procedures deemed necessary by the bank.

Comprehensive Credit Contract between SZ Highpower and China Everbright Bank Co., Ltd., Shenzhen Branch

Comprehensive Credit Contract between SZ Springpower and China Everbright Bank Co., Ltd., Shenzhen Branch

On January 24, 2018, each of SZ Highpower and SZ Springpower entered into a comprehensive credit line contract with China Everbright Bank Co., Ltd., Shenzhen Branch. SZ Highpower’s loan agreement provides for a revolving line of credit of up to RMB20,000,000 ($3,186,540) and SZ Springpower’s loan agreement provides for a revolving line of credit of up to RMB30,000,000 ($4,779,810). Each Company may issue bank acceptance, from time to time as needed, but must make a specific drawdown application on or before January 23, 2019, after which time the bank may cancel all or part of the facilities. SZ Highpower’s loan is guaranteed by SZ Springpower, HZ HTC, ICON and our Chief Executive Officer, Dang Yu Pan and his wife. SZ Springpower’s loan is guaranteed bySZ Highpower, HZ HTC and ICON and our Chief Executive Officer, Dang Yu Pan and his wife. The used facility of SZ Highpower and SZ Springpower was $3,186,540 and $4,779,810 as of March 31, 2018 which was used for bank acceptance.

The following constitute events of default under the loan contracts: a significant monetary policy change in the PRC; a severe financial risk occurs or is likely to occur in borrower’s location; a significant change in borrower’s business market; the borrower has experienced or will encounter major operational difficulties or risks; a significant change in borrower’s corporate structure, such as a merger, acquisition, reorganization, separation, amalgamation or termination, which the bank believes might affect its ability to collect on the loan; the borrower’s refusal to accept the bank’s supervision and inspection of the use of loan funds and borrower’s operational and financial activities; borrower’s change in the use of the loan proceeds without the prior consent of the bank, or misappropriation of loan funds, or engagement in illegal or irregular transactions; the borrower’s providing of false materials or withholding of important financial or operational facts; the borrower’s transfer of assets, retrieval of capital, denial of indebtedness; the borrower’s being considered a “group account” according to the “Commercial Bank Group Guidelines for Customer Credit Risk Management Business,” or other relevant laws and regulations through related party transactions; the borrower’s violation of the contractual commitments stipulated in the contract; a guarantor is in critical shortage of working capital or encounters a major operational difficulty, which negatively affects the guarantor’s ability to guaranty the loan; any pledged object is damaged or lost, which jeopardizes the security and rights of the bank; the emergence of any other circumstance that the bank determines may affect the bank’s ability to collect on the loan or harm the bank’s rights and benefits; the borrower’s failure to perform any obligations in a specific business contract.

Upon the occurrence of an event of default, the bank may: adjust the maximum amount of the line of credit, any specific line of credit and the effective period for credit extension and/or cancel the comprehensive contract, terminate the unused portion of the credit line.

Basic Credit Line Contract Between SZ Springpower and Industrial Bank Co., Ltd., Shenzhen Longgang Branch.

On March 15, 2018, SZ Springpower entered into a basic credit line contract with Industrial Bank Co., Ltd., Shenzhen Longgang Branch, which provides for a revolving line of credit of up to RMB40,000,000 ($6,373,080). SZ Springpower may issue bank acceptance from time to time as needed on or before March 15, 2019. The loan is guaranteed by SZ Highpower and our Chief Executive Officer, Dang Yu Pan. The used facility was $5,006,054 as of March 31, 2018 which was used for bank acceptance.

The following constitute events of default under the loan contract: any information provided by or representation or warranty made by SZ Springpower proves to have been untrue, inaccurate, incomplete or misleading; a deterioration or obvious weakening of SZ Springpower’s credit standing or ability to repay the loan; a cross default under certain agreements involving SZ Springpower or a guarantor, or their affiliated related parties; SZ Springpower’s violation of any obligations in an affiliated specific credit line contract; SZ Springpower’s failure to timely repay the principal, interest and fees under the contract and any specific contract; SZ Springpower’s suspension of payment, or failure or indication that it is unable to repay, the debt due; SZ Springpower’s termination of its business, liquidation, bankruptcy, dissolution, or revocation or cancellation of it business permit ; SZ Springpower’s involvement in a major business dispute or deteriorated financial situation; or the emergence of any other situation that endanger, damage, or may endanger, damage the bank’s rights and benefits.

Upon the occurrence of an event of default, the bank may: temporarily suspend or permanently terminate SZ Springpower’s credit limit in whole or in part; announce the immediate expiration of all or part of the debts under the contract; terminate the contract and declare all amounts outstanding under the contract immediately due and payable; request overdue interest from SZ Springpower caused by the default; request penalty interest; or request compensation in full from SZ Springpower for the breach.

Item 6. Exhibits

Exhibit Number		Description of Document

10.1		Working Capital Loan Contract dated March 19, 2018, between Shenzhen Highpower Technology Co., Ltd and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch (translated to English).

10.2		Working Capital Loan Contract dated January 23, 2018, between Springpower Technology (Shenzhen) Co., Ltd. and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch (translated to English).

10.3		Working Capital Loan Contract dated January 24, 2018, between Shenzhen Highpower Technology Co., Ltd and Bank of China, Buji Sub-branch (translated to English).

10.4		Working Capital Loan Contract dated March 15, 2018, between Shenzhen Highpower Technology Co., Ltd and Bank of China, Buji Sub-branch (translated to English).

10.5		Working Capital Loan Contract dated March 7, 2018, between Springpower Technology (Shenzhen) Co., Ltd. and Bank of China, Buji Sub-branch (translated to English).

10.6		Comprehensive Credit Contract dated January 24, 2018, between Shenzhen Highpower Technology Co., Ltd and China Everbright Bank Shenzhen branch (translated to English).

10.6(a)		Guaranteed Maximum Contract dated January 24, 2018, between Springpower Technology (Shenzhen) Co., Ltd. and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.6(b)		Guaranteed Maximum Contract dated January 24, 2018, between Huizhou Highpower Technology Co., Ltd and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.6(c)		Guaranteed Maximum Contract dated January 24, 2018, between Icon Energy systems (Shenzhen) Co., Ltd. and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.6(d)		Guaranteed Maximum Contract dated January 24, 2018, between Pan Dangyu and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.6(e)		Guaranteed Maximum Contract dated January 24, 2018, between Yin Zhoutao and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.7		Comprehensive Credit Contract dated January 24, 2018, between Springpower Technology (Shenzhen) Co., Ltd and China Everbright Bank Shenzhen branch (translated to English).

10.7(a)		Guaranteed Maximum Contract dated January 24, 2018, between Shenzhen Highpower Technology Co., Ltd. and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.7(b)		Guaranteed Maximum Contract dated January 24, 2018, between Huizhou Highpower Technology Co., Ltd and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.7(c)		Guaranteed Maximum Contract dated January 24, 2018, between Icon Energy systems (Shenzhen) Co., Ltd. and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.7(d)		Guaranteed Maximum Contract dated January 24, 2018, between Pan Dangyu and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.7(e)		Guaranteed Maximum Contract dated January 24, 2018, between Yin Zhoutao and China Everbright Bank Co., Ltd, Shenzhen Branch (translated to English).

10.8		Basic Credit Line Contract dated March 15, 2018, between Springpower Technology (Shenzhen) Co., Ltd. and Industrial Bank Co., Ltd., Shenzhen Longgang Branch (translated to English).

10.8(a)		Maximum Amount Guaranty Contract dated March 15, 2018, between Shenzhen Highpower Technology Co., Ltd. and Industrial Bank Co., Ltd., Shenzhen Longgang Branch (translated to English).

10.8(b)		Maximum Amount Guaranty Contract dated March 15, 2018, between Dangyu Pan and Industrial Bank Co., Ltd., Shenzhen Longgang Branch (translated to English).

31.1		Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

This exhibit shall not be deemed “filed” for purposes of Section18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

HIGHPOWER INTERNATIONAL, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Highpower International, Inc.


Dated: May 11, 2018	By:	/s/ Dang Yu Pan
		Dang Yu Pan
	Its:	Chairman of the Board and Chief Executive Officer (principal executive officer and duly authorized officer)

	By:	/s/ Sunny Pan
		Sunny Pan
	Its:	Chief Financial Officer (principal financial and accounting officer)

Exhibit 10.1

Working Capital Loan Contract

Number :0400000928-2018nian(Henggang) No. 00016

Important note: The contract is signed between borrower and lender according to laws and on equal and willing basis, and all the terms of this contract are true meaning of both sides. In order to protect the borrower’s legitimate rights and interests, the lender hereby inform the borrower to pay full attention to all the terms concerning the rights and obligations of both parties , especially the bold parts of the contract.

The lender : Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch

Person in charge: Duoping Yang

Residence (address): ***

Zip Code: 518115

Borrower : Shenzhen Highpower Technology CO., LTD.

Legal representative: Dangyu Pan Contact: Sun Xun Tel:***

Residence (address): Building A2, shanxia luoshan Industrial Zone, pinghu town, longgang District, shenzhen

Zip Code: 518000

Tel: 0755 -89686236 Fax: 0755-89686819 E-mail: /

After equal negotiation, both sides agreed to enter into this particular contract.

The first part Basic Provisions

Article 1 the use of the loan

The loan can be used for the below purpose and shouldn’t be used for any other purposes without written consent of the lender, the lender has the right to monitor the use of funds.

Use of loan: The loan can be used as current funds for production and operations.

Article 2 the loan amount and duration

2.1 The amount under this contract is RMB10,000,000.00 (RMB TEN MILLION ONLY)

2.2 The term under this contract is 12 months from the date of actual withdrawal (if separate withdrawal, from the date of the first withdrawal), the actual withdrawal date is the date on IOU.

Article 3 rate, interest and cost

3.1 to determine the RMB loan interest rates

RMB loan interest rates shall be determined according to the following (2)

(1) Fixed interest rate. Annual interest rate shall be /% and will not change during the duration.

(2) Floating interest rates. Interest rate shall be determined by base rate plus floating rate. Base rate is the corresponding base lending rate announced by the People's Bank of China on the effective date of the contract with underlying term the same as in section 2.2. The floating rate is up 31% of the base rate, and shall not change within the loan period. After withdrawal, the interest rates shall be adjusted every 3 months. The date to determine the second period’s interest rate is the corresponding date when the first period ends. If the corresponding date does not exist, then choose the last day of that month. Interest rate of each withdrawals shall be adjusted according to .

A, the interest rate for each withdrawal during any six month period shall be determined according to the rate set at the beginning of the underlying period regardless of the number of withdrawals and shall be adjusted at the next six month period.

B, Borrowing rates of each withdrawal are determined and adjusted individually.

(3) Floating interest rates. Interest rate shall be determined by base rate plus floating rate. Base rate is up \% of national interbank lending rates, and the rate cannot change during the period.

3.2 to determine the foreign exchange loan interest rates

Borrowing rates in foreign currency follow the / ways to determine:

(1) Fixed interest rate. Annual interest rate shall be / and shall not change during the duration.

(2) Floating interest rates, borrowing rates to / months / (LIBOR / HIBOR) as the base rate plus / basis points (one basis point to 0.01%) consisting of a floating interest rate spreads. Contract period plus point spreads remain unchanged. The use of sub-pen drawing and each withdrawal rates were calculated individually. Borrower after the withdrawal, following the / ways to adjust the benchmark interest rate, interest-bearing segment:

A, the benchmark interest rate changes in accordance with the corresponding period. The second phase of the benchmark interest rate adjustment date for a full withdrawal on the corresponding day after, if you adjust the month and the withdrawal does not exist on the corresponding date, places corresponding to the last day of the month, day, and so on other phases.

B, the benchmark interest rate changes in the first day of each Interest Period.

(3) Other: /

3.3 Interest for the borrower under the contract is calculated on a daily basis from the date of withdrawal and is paid on a monthly basis (month / quarter / half year) interest settlement. When the loan matures, interest should be settles along with the principal. One day interest rate = interest rate / 360.

3.4 Late penalty rate under the contract is 150% of the original loan interest rate, penalty interest rate for misappropriation of the loan is 150% of the original loan interest rate.

Article 4 withdrawal ( This section does not apply to loan cycles )

4.1 Funds should be withdrawn based on the actual needs, the borrower can make single or multiple withdrawals to the loan amount limit before 15 ^th Jun 2018.

4.2 If the borrower does not withdraw according to the contract, the lender has the right to cancel all or part of the remaining unused balance.

Article 5 repayment

5.1 Borrower repay the loan under this contract in one single lump sum.

5.2 If the Borrower prepay the principal in advance, the borrower should compensate the lender. The compensation should be calculated as: the amount of principle that is prepaid x the remaining time under the contract (number of months) x 0.1%; the number of months calculated for remaining time should be rounded to the greater integral number.

Article 6 cycle loan special agreement not applicable.

Article 7 guarantees

Under the contract, the corresponding maximum guarantee contracts are the following:

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 0400000928-2015henggangbaozi 0009)

Guarantor: Hong Kong Highpower Technology Co., Ltd.

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 0400000928-2015henggangbaozi 0010)

Guarantor: Springpower Technology (Shenzhen) Co., Ltd.

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 040000928-2015henggangbaozi 0011)

Guarantor: Dangyu Pan

Article 8 financial agreement not applicable

Article 9 dispute resolution

Dispute resolution under this contract is resolved through litigation at the court with jurisdiction where the lender is located.

Article 10 other

10.1 Contract is in triplicate, the borrower has one copy, the lender has two copies, which have the same legal effect.

10.2 The following attachments along with other attachments mutually recognized form an integral part of this contract, and have the same legal effect as the contract:

Annex 1: Notice of Withdrawal(Format)

Annex 2: commission payment protocol

Article 11 other matters agreed by the parties

Article 11 Other provisions agreed by both parties

The second part Specific Provisions

Article 1 rate and interest

1.1 In foreign currency borrowings, LIBOR is the benchmark interest rate on the withdrawal date or two banking days before the adjustment date of base interest rate (11:00 noon London time) Reuters (REUTRES) Financial Telecommunication terminal "LIBOR" page displays the borrower under this contract currency interbank offered rate; HIBOR as the benchmark interest rate adjustment date or withdrawal two banking days before (11:15 noon Hong Kong time) Reuters (REUTRES) Financial Telecommunication terminal "HIBOR" page shows the same industry in HK Offered Rate.

1.2 For loans with floating interest rates under the contract, , the rules to adjust the underlying interest rate will not be changed.

1.3 For loans with interest rates settled monthly, interest settlement date is 20th of each month; For loans with interest rates settled quarterly, the interest settlement date is the 20 ^th of the last month of each quarter; For loans with interest rates settled semi-annually, interest settlement dates are June 20 and December 20 of each year.

1.4 The first interest period is from the actual withdrawal date to the date of the first interest settlement date; the last interest period is from the following day after the previous interest period to the final repayment date; other interest period is from the following day after the previous interest period to the next interest settlement date.

1.5 In the case the People's Bank of China adjust the policies to mandate loan interest rate, the lender will follow such policies, and will not notify the borrower.

1.6 Upon signing the contract, if the loan interest rate is discounted from the base interest rate determined by People’s Bank of China, the Lender has the right to reevaluate the discount given to the Borrower based on the national policies, credit quality of the borrower, and the changes of the guarantors, etc. The Lender has the discretion to decide on the cancellation of part or all discount, and will notify the borrower in the due course.

Article 2 loan withdrawal and release

2.1 Upon withdrawal, the borrower must meet the following prerequisites, otherwise lenders are not obliged to release any funds to the borrower, except the lender agrees to advance loans:

(1) Except loans on credit, the Borrower has provided appropriate guarantee according to the Lender’s requirements, and related guarantee procedures are completed;

(2) No breaches occurred under this contract or other contracts signed by the Borrower and the Lender.;

(3) Evidence of use of funds provided by the borrower conforms to the agreed use of funds;

(4) Provide any other materials needed by the lender.

2.2 The written documents provided by the Borrower to the Lender upon withdrawal shall be original; Under conditions that original written documents can not be provided, after the consent of the Lender, a copy of the duplicate with the official seal stamped from the Borrower.

2.3 Borrowers must submit withdrawal notice to the Lender at least five banking days in advance before any withdrawal. Once withdrawal notice is submitted, without the written consent of the lender, it may not be revoked.

2.4 If the Borrower meets the prerequisites for withdrawal or agreed by the Lender to advance the loan, the lender transfers loan amount to the designated borrowers’ account, the lender is deemed to have issued the loan to the Borrower in accordance with the contract.

2.5 In accordance with relevant regulatory requirements and management requirements of lenders, loans more than certain amount or that meet other conditions should be paid by entrusted payment of the Lender, the Lender should pay loans to the designated object with the borrower's withdrawal application and payment commission.

Therefore, the Borrower should sign entrusted payment agreement with the Lender as the attachment of the contract, and should open or designate a specific account at the Lender’s bank to settle the payments.

Article 3 repayment

3.1 The Borrower shall timely repay the contract principal, interest and other payables in full. On the payment date and one banking day before each settlement day, current payable interest, principal and other payables should be fully deposited into the repayment account opened at the Lender’s bank , which shall be collected by the Lender on the repayment date or interest settlement date, or the Lender has the right to require the Borrower handle transfer procedure . If the repayment amount in the account is insufficient to cover all due amounts of the Borrower, the lender has the right to decide the liquidation order.

3.2 The Borrower should submit written application 10 banking days in advance for advanced repayment of all or part of the loans to the lender with the consent of the Lender to pay compensation to the Lender in accordance with the standard agreed in the contract.

3.3 The Borrower shall repay due principal, interest and other payables in advance with the consent of the Lender according to the contract on the advanced repayment date .

3.4 The lender has the right to call loans in advance according to the returning situation of borrower’s funds.

3.5 If the actual loan period is shorten because of the advanced repayment by the Borrower or advanced loan call by the Lender according to the contract, the corresponding interest rate level will not be adjusted.

Article 4 cycle loan (not applicable)

Article 5 guarantee

5.1 In addition to loans on credit, the borrower should provide legitimate and effective guarantee that is accepted by the Lender to fulfill the obligations under the contract . Guarantee contracts are signed separately.

5.2 Borrower shall promptly notify the lender, and further provides other guarantees accepted by the Lender under the conditions that damages, depreciation, property disputes, being seized or detained, or discreet disposal of collateral by the Borrower, or the guarantor’s financial condition changes adversely,

5.3 If accounts receivables are pledged as collaterals under the contract during the period the contract is still effective, the lender has the right to declare early maturity of loans, and require the borrower to immediately repay some or all of loan principal and interest, or request additional legitimate and effective collaterals against the loans, if one of the following conditions occur,

(1) The pledgor of the accounts receivable bad debt increases on the payer of which the accounts receivable are pledged, for two consecutive months;

(2) The accounts receivable that is uncollectable accounts for over 5% of the pledgor’s total accounts receivable.

(3) The accounts receivable is due and uncollectable when trade disputes (including but not limited to quality, technology, service-related disputes) or debt disputes between the pledge and payer

Article 6 account management

6.1 Borrower shall designate a special account at the Lender’s bank for cash inflows for collecting sales revenues or planned capital repayment. Corresponding to the sales in the form of non-cash settlement, the borrower should ensure timely receipt of funds into the designated account.

6.2 Lender has the right to monitor the designated account, including but not limited to the capital income and expenditure, the borrower should cooperate. If required by the Lender, the Borrower should enter into a special account control agreement.

Article 7 representations and warranties

Borrower makes the following representations and warranties to the lender, and such representations and warranties remains in effect under the term of the contract:

7.1 Borrower shall have the qualification, and ability to perform the contract signed with the Lender.

7.2 The Borrower has received all the necessary authorization or approval to sign and perform this contract, which is not in violation of the Articles of Association and relevant laws and regulations, and shall bear other obligations under the contract not in conflict with other contracts.

7.3 The borrower has been scheduled to meet other debt payments, bank loan principal and interest owed no malicious behavior.

7.4 The borrower has a sound organizational and financial management system, in the last year of production and management process has not a major act of violation of discipline, the current senior management has no significant adverse record.

7.5 The borrower provides to the lender of all documents and information are true, accurate, complete and effective, there is no false record, misleading statement or significant omission.

7.6 The borrower provides to the lender's financial and accounting reports are prepared under Chinese accounting standards, true, fair and complete reflection of the borrower's operations and liabilities, and the borrower's financial situation has not any material adverse change since the most recent financial reporting period.

7.7 The borrower has not concealed to the lender any litigation, arbitration or claim involved.

Article 8 borrower commitment

8.1 The Borrower withdraws and uses funds under terms and conditions in the contract. The borrowed money is not used for fixed assets and equity and other investments, not in any way into the stock market, futures market or uses prohibited by relevant laws and regulations.

8.2 Repay the loan principal and interest and other payables in accordance with the contract.

8.3 Accept and actively cooperate with the lender for account analysis, inspection, on-site reviews, etc., including use of the loan, including the use of funds and supervision of the inspection. In accordance with the lender’s requirements, the borrower periodically provides summary reports for the use of funds.

8.4 Accept the lender's credit check required by the lender, and provide the lender with balance sheet, income statement and other financial and accounting information reflecting the borrower's solvency, to actively assist and cooperate with the lender to investigate and review its financial situation and production operations.

8.5 Before paying off the loan principal and interest under the contract and other payables, the Borrower is not allowed to repay and dividends.

8.6 For the merger, divesture, reduction, changes in ownership, transfer of substantial assets and debt, significant foreign investment, substantial increase in debt financing and other activities that may adversely affect the rights of the Lender’s interest, prior written consent is required by the lender.

8.7 One of the following circumstances occurs, notify the lender:

(1) The change on articles of incorporation, business scope, registered capital, the legal representative;

(2) Out of business, dissolution, liquidation, business for rectification, revocation of business license is revoked or application (by application) bankruptcy;

(3) Or may be involved in major economic disputes, litigation, arbitration, or the property was legally seized, detained or regulation;

(4) Shareholders, directors and senior management is currently involved in serious cases or economic disputes.

8.8 Timely, completely and accurately disclose related party relationships and related party transactions.

8.9 Sign and verify notices mailed, or in the form, from lender ..

8.10 Not dispose of assets in order to reduce the solvency; provide guarantees to third parties without damaging the interest of the lender.

8.11 If the loans under the contract are on credit basis, the Borrower should provide complete, true, accurate information to reflect providing guarantees that may affect its obligations under this contract, and acquire written consent from the lender.

8.12 Take responsibility for the expenses from the Lender in purpose of fulfillment of contracts, including but not limited to litigation or arbitration fees, property preservation fees, legal fees, execution fees, assessments fees, auction fees, notice fees.

8.13 Debt settlement under the contract is in priority to its shareholders, and at least has equal status with the borrower's other similar debt from other creditors and borrowers.

8.14 Reinforce the social and environmental risk management, and agree to accept inspections by the Lender. If requested by the Lender, the Borrower agrees to provide the corresponding report.

Article 9 lender commitment

9.1 Release loans to the Borrower in accordance with the contract.

9.2 Maintains the confidentiality of non-public information, except required by laws and regulations otherwise.

Article 10 breach of contract

10.1 Any of the following events constitutes an event of breach:

(1)The borrower fails to repay principal, interest, and other payables in accordance with the provisions specified in this contract, or fails to fulfill any other obligations in this contract, or contrary to the statements, guarantee and commitments in this contract;

(2)The guarantees in this contract have adversely changed to the Lender’s loan, and the Borrower is not available to provide other guarantees approved by the lender;

(3) Fail to pay off any other debts due by the Borrower, or fails to fulfill or breach other obligations in this contract, or likely to affect the performance of the obligations in this contract;

(4) The financial performance of the profitability, debt payment ability, operating capacity and cash flow of the Borrower exceed the agreed standards, or deterioration has been or may affect the obligations in this contract;

(5) The Borrower's ownership structure, operation, external investment has changed adversely, which have affected or may affect the fulfillment of the obligations in this contract;

(6) Borrower involves or may involve significant economic disputes, litigation, arbitration, or asset seizure, detention or enforcement, or judicial or administrative authorities for investigation or take disciplinary measures in accordance with the laws, or illegal with relevant state regulations or policies in accordance with the laws, or exposure by media, which have affected or may affect the fulfillment of the obligations in this contract;

(7) The borrower’s principal individual investors, key management officer’s change, disappearances or restriction of personal liberty, likely to affect the performance of the obligations in this contract;

(8) The borrower using false contracts with related parties, using no actual transaction to extract the lender’s funds or credit, or evasion of lender’s loan right through related party transactions;

(9) Borrowers have been or may be out of business, dissolution, liquidation, business reorganizations, business license has been revoked or bankruptcy;

(10) Borrowers breaches food safety, production safety, environmental protection and other environmental and social risk management related laws and regulations, regulatory requirements or industry standards, resulting in accidents, major environmental and social risk events, likely to affect the performance of the obligations in this contract;

(11) In this contract, the borrowing is paid by credit, the borrower's credit rating, level of profitability, asset-liability ratio, net cash flow of operating and other indicators do not meet the credit conditions of the lender; or without the lender’s written contract, pledges guarantee or provides assurance guarantees to other party, likely to affect the performance of the obligations in this contract;

(12) Other adverse situations may affect in the realization of loan right in this contract.

10.2 If the borrower breaches of contract, the lender has the right to take one or more of the following measures:

(1) Require the borrower to remedy the default within a certain time limit

(2) Terminate other financing funds in other contract issued to the borrower by the lender, cancel part or all of undrawn borrowings and other financing amount of borrower;

(3) Announce the outstanding loan and other financing amount between the lender and the borrower in this contract, and take back the outstanding amounts;

(4) Requires the borrower to compensate the loss of the lender caused by the breach of contract;

(5) Measures according to provisions of lows and regulations, provisions of this contract and other necessary measures.

10.3 If the borrower fails to repay the due loan (including loan declared expire immediately), the lender has the right to charge penalty interest according to penalty interest rate agreed by this contract from the due date. The interest fails to repay on time, charge compound interest according to overdue penalty interest rate.

10.4 Borrower fails to use the loan for agreed usage, the lender has the right charge penalty interest on embezzlement according to embezzlement penalty interest rate agreed by this contract. The interest fails to repay on time during the embezzlement period, charge compound interest according to embezzlement penalty interest rate.

10.5 The borrower simultaneously happens the situations in section 10.3, 10.4, choosing the heavier interest rate to charge, cannot impose in double.

10.6 If the borrower does not repay the principal, interest (including interest and compound interest) or other payables on time, the lender has the right to announcements through the media for collection.

10.7 If the control or controlled relationship between related parties of the borrower and the borrower changes, or the related parties of the borrower happens the other situations except the situations of (1) and (2) in above provision 10.1, likely to affect the performance of the obligations of the borrower in this contract, the lender has the right to take the measures agreed in the contract.

Article 11 deduction

11.1 Borrower does not repay the due debt in this contract according to this contract(including the debt declared due immediately), the lender has the right to deduct corresponding amount from all the functional and foreign accounts opened at the branches of ICBC, until all the debt of the borrower in this contract are paid off.

11.2 If the currency of deduct payments is inconsistent with the currency in this contract, the exchange rate on the deduction day is the applicable exchange rate. The interest and other fees during the deduction fees and debt pay off day, and the difference because of fluctuations the exchange rate during this period is assumed by the borrower.

11.3 If deducted amount for the lender is insufficient to pay off all debts, the lender has the right to determine the payment order.

Article 12 transfer of rights and obligations

12.1 Lender has the right to transfer all or part of the right in this contract to a third party, the transferring actions do not need to acquire the consent of the borrower. If without the consent of the lender in writing, the borrower cannot transfer any right and obligations in this contract to a third party.

12.2 The Lender or China Industrial and Commercial Bank Limited ("ICBC") can Authorize or commit the other branches to perform the rights and obligations in this contract according to operation need, or transfer the loan right in this contract to the other branches of ICBC, the borrower must agree, and the above actions of the lender do not need to ask for permission of borrower. The other branches which undertake the lender’s rights and obligations have the right to perform all rights in this contract, and have right to apply for litigation, arbitration, compulsory execution for the disputes in this contract in the branch’s name.

Article 13 Effect, Change and Terminate of This Contract

13.1 This contract is effective since the signature date, and is terminated on the day the borrower performs all the obligations in this contract.

13.2 Any change of this contract shall be agreed by all parties involved and be made in writing. The changes of provisions and agreements are part of the contract, has equal legal right with the contract. Except the changed part, the rest part of this contract is still valid, before the changes is in effect, the original terms of this contract is still valid.

13.3 The change or termination of this contract will not affect the right of all parties involved to require compensation. The termination of this contract, will not affect the effectiveness of the dispute settlement provisions.

Article 14 law and dispute resolution

The contract formation, validity, interpretation, performance and dispute settlement are applicable PRC laws. All caused by the contract or in connection with the contract-related disputes and disputes, both parties should be resolved through consultation, the consultation fails according to the contract settlement.

Article 15 confirmation of address for Litigation/arbitration

15.1 The Lender and the Borrower confirm the mailing address and method indicated in the first page of this Contract as the Borrower’s effective address and method for service of Litigation/arbitration (including but not limited to summons, notice of trial, written judgment, order, mediation agreement and notice for performance within a time limit, etc.).

15.2 the borrower agree to arbitration or court use this contract page written arbitration/litigation document to fax, E-mail, except written judgments or orders and conciliation statements.

15.3 the service agreement shall apply to the procedures of arbitration and litigation in the first instance, second instance and retrial and implementation stages. To the above address of service agency or court of arbitration for delivery can be directly by mail.

15.4 The Borrower ensures that the address for service given above is accurate and effective. In case of change of the address for service given above, the Borrower ensures to notify the Lender in written form in time, or the service given according to the address given above shall remain effective and the Borrower shall bear all legal consequences arising therefrom.

Article 16 complete contract

The first part of this contract, "borrowing conditions" and the second part of the "liquidity loan contract terms," together form a complete loan contract, the same two words have the same meaning. The loan borrower is constrained by the above two parts.

Article 17 notice

17.1 All notices under the contract should be given in writing. Unless otherwise agreed, the parties designated residence stated in this contract for communication and contact address. Address of any party or other contact is changed, shall be in writing promptly notify the other party.

17.2 One party can notify the other party in the form of announcement or notary service if the recipient party refuses to receive other circumstances that cause inability to deliver.

Article 18 Special provisions for value-added tax

18.1 The costs/interest and expenses (to be determined pursuant to the specific contract) that the Borrower pay the Lender under this Contract shall be a tax-included price.

18.2 If the Borrower requests the Lender to issue a value-added tax invoice, the Borrower shall register information with the Lender. The information registered shall include full name of the Borrower, identification number or social credit code of the taxpayer, address, telephone number, opening bank and account number. The Borrower shall ensure that the relevant information provided for the Lender is accurate, correct and complete. The Borrower shall, according to the Lender’s requirements, provide relevant supporting materials. The specific requirements shall be announced by the Lender through website notice or website announcement.

18.3 If the Borrower collects a value-added tax invoice itself, the Borrower shall provide the Lender with a power of attorney sealed, designate a person for collecting and define the identification card number of the person. The person designated shall take the original of his identification card for collecting the value-added tax invoice. In case of change of the person designated for collecting, the Borrower shall issue to the Lender a new power of attorney sealed. In the event that the Borrower selects to collect the value-added tax invoice by post, the Borrower shall also provide the correct mailing information for service. In case of change of the mailing information, the Borrower shall notify the Lender timely in written form.

18.4 If the Lender is unable to issue a value-added tax invoice timely due to force majeure, such as natural disaster, government act and social exceptional events, or due to causes attributable to tax authorities, the Lender shall have the right to postpone issue of a value-added tax invoice, without bearing any liability.

18.5 If the Borrower is unable to receive a relevant copy of the value-added tax invoice due to causes not attributable to the Lender, such as loss, damage or delay of the invoice after the Borrower collects or the Lender submits to a third party to post the invoice, or if the Borrower is unable to make deduction due to delay of the value-added tax invoice, the Lender shall not bear liability of compensation for the Borrower’s relevant economic losses.

18.6 Should a special red-letter invoice of value-added tax be issued resulting from sales return, suspension of taxable service or wrong information of invoice, or authentication failure of deduction copy and invoice copy, where the Lender should submit an Information Table for Issuing a Special Red-Letter Invoice of Value-Added Tax to a tax authority in accordance with relevant laws, regulations and policy documents, the Borrower shall submit an Information Table for Issuing a Special Red-Letter Invoice of Value-Added Tax to the tax authority, and the Lender shall issue a special red-letter invoice of value-added tax after the tax authority makes review and notifies the Lender.

18.7 In case of adjustment of the national tax rate during the execution period of this Contract, the Lender shall have the right to adjust the price agreed herein according to the change of the national tax rate.

Article 19 Miscellaneous

19.1 No failure to exercise or partially exercise or delay in exercising any right hereunder by the Lender shall be deemed as a waiver or change of this right or any other right or affect the Lender to further exercise this right or other rights.

19.2 The invalidity or enforceability of any provision of the Contract shall neither affect the validity or enforceability of any other provision hereof nor affect the validity of the entire Contract.

19.3 According to the provisions of relevant laws and regulations or the requirements of the financial regulatory institutions, the Lender shall have the right to provide the information related to this Contract and the Borrower’s other relevant information for the credit consulting system of the People’s Bank of China and other credit information database established by law, for the eligible institutions or individuals for consultation and use. For the purpose of conclusion and performance of this Contract, the Lender shall also have the right to inquire the Borrower’s relevant information through the credit consulting system of the People’s Bank of China and other credit information database established by law.

19.4 The terms of “the affiliated parties”, “the relationship between affiliated parties”, “the affiliated party transaction”, “the main individual investor” and “the key managerial personnel” stated in the Contract shall have the same meanings as those defined in the Accounting Standards for Enterprises No. 36 - Disclosure of Affiliated Parties (Finance and Accounting (2006) No. 3) issued by the Ministry of Finance and future amendment thereto.

19.5 The term “environmental and social risk” means the danger and relevant risk which are likely to cause by the Borrower and its affiliated party during construction, production and operation activities, including the environmental and social problems related to energy consumption, pollution, land, health, safety, resettlement of inhabitants, ecological protection and climate change.

19.6 The documents and vouchers for the loan hereunder made and kept by the Lender according to its business rules shall constitute effective evidences of proving the claim and debt relationship between the Borrower and the Lender and shall be binding upon the Borrower.

19.7 In this Contract, (1) this Contract referred to herein shall include any amendment or supplementation to this Contract; (2) the headings to the articles hereof are for ease of reference only, and in no event shall the substance of any paragraph be interpreted and the contents and scope be restricted by such headings; (3) if the date of withdrawal or repayment is not a banking day, it shall be extended to the next banking day.

Both parties confirm: the Borrower and the Lender have made full consultation on all terms and conditions of this Contract. The Lender has reminded the Borrower to pay special attention to the provisions for the rights and obligations of both parties and have overall and correct understanding of these provisions. At the Borrower’s request, the Lender has interpreted and explained relevant provisions. The Borrower has carefully read and fully understood of all terms and conditions of this Contract (including Part 1 Basic Provisions and Part 2 Specific Provisions). Both the Borrower and the Lender have completely consistent understanding of all terms and conditions of this Contract and have no objection to the contents of this Contract.

Lender (Seal):

Person in Charge/Authorized Agent: (Seal)

Borrower (Seal):

Legal Representative/Authorized Agent: (Seal)

Exhibit 10.2

Working Capital Loan Contract

Number :0400000928-2018nian(Henggang) No. 00002

The lender : Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch

Person in charge: Duoping Yang Residence (address): ***

Zip Code: 518115

Borrower : Springpower Technology (Shenzhen) Co., Ltd.

Legal representative: Dangyu Pan Contact: Sun Xun

Residence (address): Factory A, Chaoshun Industrial Zone, Renmin Road, Fumin Residential Area, Guanlan, BaoAn District,

Zip Code: 518000

Tel: 0755 -89686236 Fax: 0755-89686819 E-mail: /

After equal negotiation, both sides agreed to enter into this particular contract.

The first part Basic Provisions

Article 1 the use of the loan

The loan Can be used for the below purpose and shouldn’t be used for any other purposes without written consent of the lender, the lender has the right to monitor the use of funds.

Use of loan: The loan can be used as current funds for production and operations.

Article 2 the loan amount and duration

2.1 The amount under this contract is RMB10,000,000.00 (RMB TEN MILLION ONLY)

2.2 The term under this contract is 12 months from the date of actual withdrawal (if separate withdrawal, from the date of the first withdrawal), the actual withdrawal date is the date on IOU.

Article 3 rate, interest and cost

3.1 to determine the RMB loan interest rates

RMB loan interest rates shall be determined according to the following (3)

(1) Fixed interest rate. Annual interest rate shall be /% and will not change during the duration.

(2) Floating interest rates. Interest rate shall be determined by base rate plus floating rate. Base rate is the corresponding base lending rate announced by the People's Bank of China on the effective date of the contract with underlying term the same as in section 2.2. The floating rate is % of the base rate, and shall not change within the loan period. After withdrawal, the interest rates shall be adjusted every 6 months. The date to determine the second period’s interest rate is the corresponding date when the first period ends. If the corresponding date does not exist, then choose the last day of that month. Interest rate of each withdrawals shall be adjusted according to .

B, Borrowing rates of each withdrawal are determined and adjusted individually.

(3) Floating interest rates. Interest rate shall be determined by base rate plus floating rate. Base rate is up 0.92% of national interbank lending rates, and the rate cannot change during the period.

3.2 to determine the foreign exchange loan interest rates

Borrowing rates in foreign currency follow the / ways to determine:

(1) Fixed interest rate. Annual interest rate shall be / and shall not change during the duration.

(2) Floating interest rates, borrowing rates to / months / (LIBOR / HIBOR) as the base rate plus / basis points (one basis point to 0.01%) consisting of a floating interest rate spreads. Contract period plus point spreads remain unchanged. The use of sub-pen drawing and each withdrawal rates were calculated. Borrower after the withdrawal, following the / ways to adjust the benchmark interest rate, interest-bearing segment:

B, the benchmark interest rate changes in the first day of each Interest Period.

(3) Other: /

3.4 Late penalty rate under the contract is 150% of the original loan interest rate, penalty interest rate for misappropriation of the loan is 150% of the original loan interest rate.

Article 4 withdrawal ( This section does not apply to loan cycles )

4.1 Funds should be withdrawn based on the actual needs, the borrower can make single or multiple withdrawals to the loan amount limit before 11 ^th Jan 2019.

4.2 If the borrower does not withdraw according to the contract, the lender has the right to cancel all or part of the remaining unused balance.

Article 5 repayment

5.1 Borrower repay the loan under this contract in one single lump sum.

Article 6 cycle loan special agreement not applicable.

Article 7 guarantees

Under the contract, the corresponding maximum guarantee contracts are the following:

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 0400000928-2015henggangbaozi 0014)

Guarantor: Huizhou Highpower Technology Co., Ltd.

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 0400000928-2015henggangbaozi 0013)

Guarantor: Hong Kong Highpower Technology Co., Ltd.

Maximum amount of guarantee contract name: "the maximum guaranteed contract" (ID: ICBC 0400000928-2015henggangbaozi 0012)

Guarantor: Dangyu Pan

Maximum amount of guarantee contract name: "the maximum Collateral contract" (ID: ICBC 0400000928-2016henggangdizi 0024)

Guarantor: Shenzhen highpower technology Co., Ltd.

Article 8 financial agreement not applicable

Article 9 dispute resolution

Dispute resolution under this contract is resolved through litigation at the court with jurisdiction where the lender is located.

Article 10 other

10.1 Contract is in triplicate, the borrower has one copy, the lender has two copies, which have the same legal effect.

10.2 The following attachments along with other attachments mutually recognized form an integral part of this contract, and have the same legal effect as the contract:

Annex 1: Notice of Withdrawal

Annex 2: commission payment protocol

Article 11 other matters agreed by the partie

Article 11 Other provisions agreed by both parties

The second part Specific Provisions

Article 1 rate and interest

1.2 For loans with floating interest rates under the contract, , the rules to adjust the underlying interest rate will not be changed.

1.5 In the case the People's Bank of China adjust the policies to mandate loan interest rate, the lender will follow such policies, and will not notify the borrower.

Article 2 loan withdrawal and release

2.1 Upon withdrawal, the borrower must meet the following prerequisites, otherwise lenders are not obliged to release any funds to the borrower, except the lender agrees to advance loans:

(1) Except loans on credit, the Borrower has provided appropriate guarantee according to the Lender’s requirements, and related guarantee procedures are completed;

(2) No breaches occurred under this contract or other contracts signed by the Borrower and the Lender.;

(3) Evidence of use of funds provided by the borrower conforms to the agreed use of funds;

(4) Provide any other materials needed by the lender.

Article 3 repayment

3.3 The Borrower shall repay due principal, interest and other payables in advance with the consent of the Lender according to the contract on the advanced repayment date .

3.4 The lender has the right to call loans in advance according to the returning situation of borrower’s funds.

Article 4 cycle loan (not applicable)

Article 5 guarantee

(1) The pledgor of the accounts receivable bad debt increases on the payer of which the accounts receivable are pledged, for two consecutive months;

(2) The accounts receivable that is uncollectable accounts for over 5% of the pledgor’s total accounts receivable.

(3) The accounts receivable is due and uncollectable when trade disputes (including but not limited to quality, technology, service-related disputes) or debt disputes between the pledgor and payer